Opinion
No., 30030
Decided August 9, 1944.
Taxation — Municipal corporations — Tax rate to service and pay bonds — Levy may not exceed limitation fixed by municipal charter amendment — Lower statutory or constitutional limitation operative at time bonds issued — Levies outside limitation to equalize reduction in tax valuation — Schedule to Section 2, Article XII, Constitution, effective January 1, 1931 — Municipality may levy outside charter limitation to equalize for personal property valuation lost, when.
1. The taxing authorities of a municipal corporation, the charter of which provides for a limitation of a tax rate of 7.5 mills on each dollar of valuation of property on the tax duplicate, may not levy taxes in excess of such rate to service and pay bonds of such corporation issued prior to the adoption of such charter limitation where there was in force, at the time such bonds were issued, a statutory or constitutional limitation operative within the corporation which was lower than that provided in the charter.
2. Although Section 2, Article XII of the Constitution as amended, effective January 1, 1931, provided generally for an overall tax limitation of 15 mills on each dollar of the valuation of taxable property, pursuant to the authority granted by the schedule thereto to make levies for interest and sinking fund or retirement of bonds issued or authorized prior to January 1, 1931, outside that limitation to the extent required to equalize any reduction in the amount of taxable property available for such levies, the taxing authorities of a municipal corporation which has adopted a charter tax limitation, may equalize a loss of taxable personal property on the tax duplicate of such corporation by making a levy outside such charter limitation to service and pay bonds which were issued by such corporation after the adoption and within the limits of such charter limitation, but prior to January 1, 1931.
APPEAL from the Court of Appeals of Summit county.
The city of Akron adopted a budget for the year 1944 through which it attempted to service certain bonds by levying outside the tax limitations provided for in its charter, sufficient millage to produce $876,234 to service such bonds issued by it between January 1, 1921, and November 6, 1928, and to produce $85,324 to service bonds issued by it between November 6, 1928, and November 1931.
A public hearing on this budget as provided by law was duly held but no protest was filed. The budget was then approved by the budget commission of Summit county.
The city of Akron adopted a charter in 1918 which became effective January 1, 1920. Between January 1, 1920, and November 6, 1928, Section 86 of the charter, which provided for the adoption of an annual budget without any provision for tax limitation, was in force and during that time the city operated as to fiscal matters under the Constitution and laws of the state of Ohio.
From January 1, 1911, until August 11, 1927, there was in effect a ten-mill statutory tax limitation (Section 5649-2, General Code, 101 Ohio Laws, 430), and in addition thereto a five-mill statutory limitation for municipal purposes except by an approval vote of the people. (Section 5649-3 a, General Code, 102 Ohio Laws, 266; 108 Ohio Laws, pt. 2, 1305; 109 Ohio Laws, 146, 147; 111 Ohio Laws, 378, repealed 112 Ohio Laws, 391.) On August 11, 1927, the ten-mill statutory tax limitation and the five-mill statutory limitation for municipalities were repealed and in their places there became effective a statutory fifteen-mill "overall" tax limitation which continued until January 1, 1931 (Section 5625-2, General Code, 112 Ohio Laws, 392). On the latter date this was superseded by a fifteen-mill "overall" constitutional amendment and the schedule thereto attached. This constitutional amendment continued in operation from January 1, 1931, until January 1, 1934, when the present ten-mill constitutional tax limitation became effective.
On November 6, 1928, the charter of the city of Akron was amended by vote of the people, and Sections 86 a, 86 b and 86 c became a part of the charter. These sections are as follows:
"Section 86 a. The aggregate amount of taxes that may be levied by the taxing authority of the city on any taxable property in the city of Akron without a vote of the people shall not in any one year exceed seven and five-tenths (7.5) mills on each dollar of tax valuation of said city. Of said total maximum levy, an amount shall annually be levied sufficient to pay the interest, sinking fund and retirement charges on all bonds and notes of the city of Akron heretofore or hereafter authorized to be issued without the authority of the electors, which levy shall be placed before and in preference to all other levies and for the full amount thereof. The remaining portion of said maximum levy, or such part thereof as may be necessary, may be levied annually for the current operating expenses of said city * * *.
"Section 86 b. The council shall annually levy outside the limitations provided in this charter and the limitations provided by general law, a sufficient sum to pay the interest, sinking fund and retirement charges on all bonds and notes of the city of Akron heretofore or hereafter lawfully issued, the tax for which by general law or by this charter has been or shall be authorized to be levied outside of tax limitations, including the expense incident to the management of such sinking fund. Amounts certified under the laws of the state as necessary for interest, sinking fund and retirement purposes shall not be subject to change by council.
"Section 86 c. Taxes may be levied outside of the limitations of Section 86 a of this charter upon approval of a majority of electors of the city of Akron voting thereon at a November election in the manner prescribed by general law for voting levies outside the statutory limitations."
In 1929, the first calendar year the 7.5-mill limitation, under the charter amendment, was effective, the tax duplicate of the city of Akron was $383,457,220. In 1930, it was $422,099,180, which permitted the city to operate within the charter limitation for both debt service and operation. In 1931, the tax duplicate was $432,047,580. In 1932, however, $95,407,760 of taxable personal property was removed under the intangible tax law, and there was substituted intangible property in the amount of $46,619,456, resulting in a reduction of the tax base, of an amount of $48,788,304. This reduction, together with a reduction in real property value, resulted in a sharp curtailment of tax revenues available to the city for debt service and operating expenses. This situation brought about the budget revision for the year 1944 by which the city proposes to include in the budget, outside the limitation of 7.5 mills, a tax sufficient for the payment of bonds of the city issued without a vote of the electors, in the amount of $961,558, including interest, payable within the year 1944, which would require an additional levy of approximately 3.15 mills beyond the charter limitation.
This case arose out of the request of Emma L. Guest, a taxpayer of the city of Akron, made to the Director of Law of the city on February 25, 1944, pursuant to Section 4314, General Code, to make application to a court of competent jurisdiction for a writ of mandamus to compel the mayor and council of the city of Akron and the budget commission of Summit county to confine within the charter limitation of 7.5 mills of the valuation of the taxable property of the city, the budget to be adopted for the levying of taxes for the fiscal year 1944 for the payment of the lawful expenses and charges of the city, exclusive only of such bonds and interest thereon becoming due within the year, outside of such limitation, as have been authorized by vote of the electors of the city.
The director of law, in compliance with such request, filed this action in the Court of Appeals of Summit county. The taxpayer who made the request then filed an application to intervene, which was granted, and the taxpayer filed instanter an intervening petition. The director of law had filed a demurrer to the petition, on behalf of the respondents, on the ground that the petition did not state a cause of action, which demurrer was treated by the court as a demurrer to the the intervening petition as well as to the petition.
The petition and the intervening petition set out facts substantially as hereinbefore recited. The prayer of the intervening taxpayer is that the court require the taxing authorities and budget commission to revise the budget so as to keep it within the charter limitation of 7.5 mills except as to bonds authorized by vote of the people.
The court overruled the demurrer, whereupon the respondents filed an answer admitting most of the allegations of fact heretofore stated, but setting out in substance that neither the relator nor anyone else protested the annual budget appropriation measure adopted by the budget commission and that by reason thereof the relator and others are estopped from protesting the same; that the action taken by the city council of Akron and the budget commission in modifying and adopting a tax rate for the city of Akron was pursuant to law and authority by placing outside the 7.5-mill limitation, an amount equal to approximately 3.15 mills for the reason that the same was necessary to service a pre-existing debt within the meaning of the Constitution and laws of the state of Ohio, such debt having been incurred lawfully and legally subsequent to December 31, 1920, and prior to 1934; that when the charter limitation of 7.5 mills became effective on November 6, 1928, there was available as a tax base, taxable property in the city of Akron in the sum of $422,099,188, and for the year 1930 there was available in a like manner the sum of $432,042,580; that by reason of the laws passed subsequent to January 1, 1931, when Section 2, Article XII of the Ohio Constitution became effective, the personal property list of the city of Akron was decreased; that the taxable property on the general tax list of the city of Akron does not now provide a base which is equivalent to the base in existence prior to the effective date of that constitutional amendment and the schedule attached; that as a result, the city of Akron is entitled to levy outside the 7.5-mill limitation, the amount required to equalize any reduction in the amount of taxable property available for such levies or the rate imposed upon such property effected by such laws; and that the schedule to the constitutional provision referred to is as follows:
"If the votes for the proposal shall exceed those against it, the amendment shall go into effect January 1, 1931, and original Sections 2 and 3 of Article XII of the Constitution of the state of Ohio shall be repealed and annulled; but all levies for interest and sinking fund or retirement of bonds issued, or authorized prior to said date which are not subject to the statutory limitation of fifteen mills on the aggregate rate of taxation then in force * * * and all tax levies for other purposes authorized by the General Assembly prior to said date or by vote of the electors of any political subdivision of the state, pursuant to laws in force on said date, to be made outside said statutory limitation for and during a period of years extending beyond said date, or provided for by the charter of a municipal corporation pursuant to laws in force on said date, shall not be subject to the limitation of fifteen mills established by said amendment and levies for interest and sinking fund or retirement of bonds issued or authorized prior to said date, shall be outside of said limitation to the extent required to equalize any reduction in the amount of taxable property available for such levies, or in the rate imposed upon such property, effected by laws thereafter passed." The answer alleges further that by reason of the situation brought about by the reduction of the tax base as aforesaid, the respondents have the duty and obligation, pursuant to law, to levy an amount necessary to equalize the loss of tax revenues by reason of the reduction of the value of the taxable property of such city.
The intervening taxpayer filed a reply denying all the allegations of the answer of the respondents inconsistent with the statements contained in her intervening petition.
The Court of Appeals heard the case on an agreed statement of facts and ordered a peremptory writ of mandamus to issue commanding the respondents, to revise the budget so as to confine within the limitation of 7.5 mills on each dollar of tax valuation of the city, as provided by Section 86 a of the charter, the levy of taxes for the purposes set out in the budget, other than for the payment of bonds authorized by vote of the people, by excluding from the budget the levy outside the limitation of 7.5 mills for the payment of the amount of $883,949, being the amount of bonds including interest thereon, not authorized by vote of the electors and issued prior to November 6, 1928, and the sum of $8,330 of principal and interest of bonds, not authorized by vote of the electors and issued after January 1, 1931. A motion for new trial was overruled and the respondents perfected an appeal to this court. A cross-appeal was filed by the intervening petitioner.
Mr. Clair M. Trunick, for relator-appellee, city of Akron.
Mr. Clyde F. Beery, Mr. W.E. Pardee and Mr. W.J. Laub, for appellee and cross-appellant, Emma L. Guest, a taxpayer.
Mr. Roy E. Browne, director of law, Mr. Nathan Koplin and Mr. R.F. Denison, for respondent-appellant, Charles E. Slusser, mayor, and others.
Mr. Alva J. Russell, prosecuting attorney, and Mr. William A. Spencer, for respondent-appellants, Calvin L. Bower, county auditor, and others.
This case involves the question as to whether the respondents, including the taxing authorities of the city of Akron charged with the duty of preparing the annual budget, and the budget commission charged with the approval of such budget and the determination of the tax rate for the city of Akron in order to service debts, pay interest and operate the city, had the right to levy sufficient millage beyond the city-charter limitation of 7.5 mills to pay certain bonds and interest issued prior to the enactment of such charter limitation.
As a first defense the respondents insist that because neither the intervening taxpayer nor any one else made a protest as to the budget, for which provision is made by law, the relator is estopped to question the proposed tax levy. We think there is no merit in this contention. There is no provision in the Akron city charter or any statute in this state which penalizes a taxpayer by estopping him from challenging the validity of a tax levy even though he has failed to avail himself of a protest at the budget hearing. In the absence of such specific provision in the charter or statute we are of the opinion that there is no estoppel.
Although a statutory tax-rate limitation had been in force in this state since 1911, a municipal home-rule taxation amendment was passed April 17, 1925 (111 Ohio Laws, 422, now Section 5625-14, General Code) which became effective May 13, 1925, and which provided that certain specified provisions of the state statute "shall not apply to any municipality, which by its charter or amendment thereto provides for a complete budget system of municipal receipts and expenditures, and further provides for a limitation on the total tax rate which may be levied without a vote of the people for all purposes or for current operating expenses by the legislative authority of such municipality in each year on the tax list of real and personal property therein. Said charter or charter amendment may also provide for the levying of taxes by said legislative authority outside of said charter limitation upon approval by the majority of the electors of said municipality voting thereon at a November election."
Pursuant to the authority granted by this statutory home-rule taxing amendment, the city of Akron at the November election held November 6, 1928, amended its charter effective immediately by adding thereto Sections 86 a, 86 b and 86 c above quoted in the statement of facts, providing for a tax limitation of 7.5 mills on each dollar of tax valuation of such city, except by vote of the electors.
It is the claim of the respondents that because the bonds in question were issued prior to the adoption of such charter tax limitation it can have no operation to affect such bonds, and that the city is obliged to provide a rate outside the charter limitation, sufficient to service and pay them.
However, an examination of the state legislation, both constitutional and statutory, shows that the bonds in question were at the time of their issue subject to tax limitations which were more stringent than the limitation provided by the charter of the city of Akron. In other words, the charter limitation of 7.5 mills did not place the bonds in a less favorable position than they were under the state limitation when issued. As a result of this situation there has been no impairment of the contractual or constitutional rights of the holders of these bonds, even though there had been a reduction in the value of the taxable real property.
The respondents claim that their position is supported by the rule laid down by this court in the case of State, ex rel. Ohio Natl. Bank of Columbus, v. Village of Hudson, 134 Ohio St. 150, 16 N.E.2d 266, to the effect that the inhibitions of Section 2, Article XII of the Ohio Constitution, with respect to tax limitations, are directed against new and not pre-existing debts. The respondents refer, also, to State, ex rel. Markel, v. City of Columbus, 139 Ohio St. 351, 40 N.E.2d 144, but in that case it was sought to require the city of Columbus to revise its budget for the year 1942 so as to keep within the ten-mill limitation established by amendment of Section 2, Article XII of the Constitution, effective January 1, 1934, a tax levy to provide for the payment of current instalments of interest and principal payable on outstanding bonds, issued subsequent to the year 1922, but prior to 1934, without a vote of the electors of the city. The relief sought was denied for the reason that the bonds had been issued when the limitation had been fifteen mills with the result that the rights of the bondholders would have been impaired by this reduction in limitation during the life of the bonds. The court, following the case of State, ex rel. Ohio National Bank of Columbus, v. Village of Hudson, supra, held that the bonds "constituted a pre-existing obligation which could not be impaired by the subsequently amended limitation" reducing the limitation from 15 mills to 10 mills. The principle announced in these cases is that a pre-existing debt is impaired by a reduced or lowered limitation on the tax rate by amendment after the debt is created. But there can be no such impairment by the adoption of legislation which increases the rate or amount of tax which may be levied for the payment of such debt. This is the effect of the Akron charter tax limitation.
Since the bonds in question, in the amount of $875, 619, including interest, were issued before November 6, 1928, the effective date of the charter limitation, without a vote of the electors to authorize a levy to service and pay them outside the limitation, and since such bonds are not a pre-existing debt being made subject to a lower limitation than that in force when they were issued, there is no authority in the city council to levy a tax outside the charter limitation to pay them.
It is further claimed that because of the recitals in the bonds, certain contract rights have accrued to the bondholders which required the action taken by the respondents. It is not claimed, however, that the charter limitation reduces the tax revenues to a point where the bonds cannot be serviced. The bonds may have a preference in the distribution of tax revenues, and the operating revenues of the city may be curtailed, but this does not give authority to levy taxes in excess of the charter limitation.
It is also claimed by the respondents that pursuant to the authority of the schedule attached to Section 2, Article XII of the Constitution, as amended and effective January 1, 1931, which provided in general for an overall tax limitation of 15 mills for state and local purposes, the Akron city council may levy, without the approval of the electors, an equalization rate in addition to the charter limitation rate of 7.5 mills.
In view of this contention, we are led to inquire as to what application the provisions of this schedule have to the bonds in question. There were issued after November 6, 1928, the date of the charter amendment providing a tax limitation of 7.5 mills and before January 1, 1931, the date limited in the schedule, bonds in the amount of $76,994, principal and interest. As hereinbefore stated, in 1931 there was $95,407,760 of taxable personal property on the tax duplicate of the city of Akron, which under the intangible tax law, was removed therefrom, and in its place there was substituted intangible property amounting in 1932 to $46,619, 456, thus reducing the city tax base by $48,788,304, a "reduction in the amount of taxable property available for such levies * * * effected by laws thereafter passed." (Italics ours.)
The Court of Appeals held that the schedule to the amendment of Section 2, Article XII, which provided that "* * * levies for interest and sinking fund or retirement of bonds issued or authorized prior to said date [January 1, 1931], shall be outside of said limitation to the extent required to equalize any reduction in the amount of taxable property available for such levies * * * effected by laws thereafter passed," was attached thereto to compensate for inequities which might arise under the application of the 15-mill constitutional limitation, and that the schedule has application only to bonds issued within the statutory limitation applicable at the time of their issuance. This court concurs in this view, and concludes that since the constitutional limitation can be, under the provisions of the schedule, made inapplicable when it is necessary to make an equalization because of a reduction in the amount of taxable property available for tax levy, the charter limitation may also become inapplicable under like circumstances.
The city council is attempting to levy $961,558 in taxes outside the city charter limitation, but this court is of the opinion that council may so levy such taxes in the amount only of $76,994 to compensate for the loss of the right to levy taxes on personal property of the value of $48,788,304.
The judgment of the Court of Appeals is affirmed.
Judgment affirmed.
MATTHIAS, ZIMMERMAN, BELL and TURNER, JJ., concur.
WILLIAMS, J., dissents.